January 19, 2007

Keep those old liability policies

Ever dispose of something one day only to find out the very next day that you could have used it? The construction project has been over for a few years or your annual general liability policy has been renewed several times so there is no need to keep the old policy, right? Wrong!

General liability policies for contractors and subcontractors are for the most part all “occurrence based” policies. This means that in order for coverage to apply, you need to have an occurrence take place causing either bodily injury and or property damage during the policy period. Sounds simple enough, but a policy that was insuring you back in the 1990s could in fact provide protection for a suit brought against you today.

Paper Chase

Dan Niddery

How does this happen? It has to do with a combination of the protection afforded by an “occurrence based” liability policy and the statute of limitations. As long as you can prove that the bodily injury or property damage was triggered by an occurrence during that policy of the ’90s you can invoke the protection afforded during that policy period. The clock for the statute of limitations starts ticking from the point of manifestation. You could receive a statement of claim today, (manifestation) for work that you had performed in the 1990s. If you could prove that the “occurrence” took place in a policy during construction (1990s), then you could trigger that policy. It is possible, depending on the nature of the loss, that several subsequent general liability renewal policies could also be triggered, provided you could prove that an occurrence took place in those policies as well.

It is therefore imperative that you keep all of your prior general liability policies and store them in a safe place.

Not only should you retain your general liability policies, but if you were involved in a project that was insured by a wrap-up liability policy provided by the owner or the general contractor, you should obtain and retain a copy. Furthermore, as a general contractor on projects where you provided your own general liability policy for a project, you should retain all of the certificates of liability insurance provided by your subcontractors. You may be able to trigger these policies on old projects where the work was performed by a subcontractor. Even if that subcontractor no longer exists, if you have a copy of a policy or a certificate of liability insurance and are added as an additional insured, you have access to the coverage.

If you have not been retaining your policies, start doing so now. For policies of prior years:

• Check your project files. Even though you may not have the policy, you may find old certificates of insurance with the name of your insurer, and a policy number.

• Check your old accounting records. Your controller or accounting department may have copies of the policies in their records.

• Ask your broker to dig out copies of your liability policies as far back as they have records. This will be more difficult if you have a habit of changing insurers or brokers regularly for the sake of a few premium dollars.

• If you have a history of being insured under wrap-up liability policies for some of the bigger projects, you should find a copy of a certificate of insurance. A policy would be preferred, but a certificate with an insurer and a policy number will suffice. See if you have a copy of a project insurance manual in file. The manual will explain the policy limits and define who is an insured.

On an old project, the coverage from a policy in existence many years ago could prove invaluable. It could provide the compensatory damages for the claim, and perhaps legal fees, which could save you money. The simple step of saving and accumulating your liability policies is a prudent risk management step for any contractor.

Dan Niddery is senior vice-president at AON/Reed Stenhouse Inc.

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